- NZD/USD has pulled back from the 0.6850 area to 0.6820 and is down around 0.5% on the day.
- Weak US data was largely ignored, with the dollar staging a tentative rally, while wobbly stock markets hurt the NZD.
The positive midweek momentum of the NZD / USD faded on Friday, with the pair dipping back below the key 0.6850 support zone at 0.6825, where it is trading down about 0.5% on the day. Although the dollar index has been unable to recover above the 95.00 level on Friday, it managed to rally a modest recovery from the two-month lows it posted earlier in the session. This improvement in US dollar demand, combined with mixed and choppy conditions in global equities, has weighed on the Kiwi and is the main driver of Friday’s NZD/USD decline.
Whether the modest recovery in the US dollar on Friday after strong selling pressure this week translates into a broader rally in the dollar is another question. Indeed, this week’s fundamental developments (aggressive Fed line language, consumer and producer inflation) suggest that there is substantial risk to the upside of the USD. Friday’s weak December US retail sales report and worse-than-expected January consumer sentiment survey have been ignored by currency markets as not particularly relevant to either growth prospects or the economy. Fed policy. This is because 1) US retail sales remain historically high even if spending weakened a bit more than expected in December and 2) weak consumer sentiment is mainly a function of high inflation.
US dollar upside risk of course suggests NZD/USD downside risk and bears will be watching for a retest of the key 0.6800 level and the 21-day moving average just below it at 0.6785. But with the Fed now going into blackout ahead of the January meeting and a lack of US level one data releases, the US dollar may struggle to find momentum next week. That suggests NZD/USD may have a chance to stay within the 0.6800-0.6900 range, as long as the recent slide in US (and global) stocks doesn’t extend.